innovation in real estate: disruption or ongoing ... · estate: disruption or ongoing...
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Innovation in Real Estate: disruption or ongoing transformation?
July 1st, 2019
1. Context
Strategy&
Real Estate is a major GDP contributor facing significant profitability issues
July 1st 2019
3
A major contributor to the French economy
2 million
1st
~17%
First item on the French
Households spending list
Direct and indirect jobs
Share of the Real Estate
Industry* in the French GDP
Significant profitability issues
Average profitability in the Construction business in France,
2008 and 2016 (net result in % of revenue)
3.5%
3.0%
2.0%
2.5%
1.5%
1.0%
-1.5pp
2016
2.3%
1.9%
1.6%
2008
2.6%2.5%
3.1%
-0.7pp
-0.2pp
Public WorksSub-tradeStructure* Including construction
Sources: INSEE, OECD, UFC Que Choisir, BTP Banque, Real Estech, Strategy& Analysis
Strategy&
The Real Estate value chain is highly fragmented and shows room for productivity improvement
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DevelopmentProperty management
ManagersAgentsInvestissemen
t
Asset
managementTransaction
Construc-
tion
Pain
points
Real Estate
professional
journey
Quality issuesHigh coordination
costs
Quality
expectation gaps
Cost
management
issues
Time consuming
management
Time consuming
management
Customer
journey
High energy costs
Real estate
inflation
Supply lags vs.
new customer
expectations
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This situation stimulates innovation, born from start up and incumbent players
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5
40
100
90
80
50
40
Before
2014
20162014 201820172015
Cumulatively, 400 start-ups were created since 2014 which represents a tenfold increase
Start-ups creations in France, 2014-
2018 (# of created start-ups)
Start-ups fund raising in France, 2015-
2019e (€m)“Innovation is critical for us and
we are fully aware that
harnessing it is a necessity. We
decided to build a specific
innovation team and create our
own incubator to develop our
innovative projects before
rolling them”
Innovation Director, Leading
player of the Real Estate
Agencies
Sources: Real Estech, Analyses Strategy&
375
204
177
64
15
S1 2019201820172015 2016
Including Meero fund
raising (€205m)
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Our study aims at answering 3 key questions
How is this set of newcomers in the Real Estate market
reshaping the industry?
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1
2
3
How disruptive are they?
Are we talking about an evolution or a revolution?
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We investigated six segments to understand what is reshaping the French Real Estate industry
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TransactionConstructionAsset & Property
management
Short- and long-
term house rentalSite coordination software Fixed rate real estate
agents
New house financing
brokers
New financing
schemes for
security deposits
& rent guarantee
New software for asset &
property managers
Sources: Strategy& analysis
1 3
2
5
4
6
2. Key facts
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Key fact 1: we identify three major innovation applications across all investigated segments
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Site
coordination
software
New house
financing
brokers
Fixed rate
real estate
agents
New
software for
asset &
property
managers
Short- and
long-term
house rental
New financing
schemes for
security
deposits & rent
guarantee
Software solutions
Common features emerge: proposed solutions are highly specific, customized and user
experience-oriented
Algorithms and calculations
Business process
automation
Sources: interviews, Strategy& analysis
6 SEGMENTS
TY
PE
S O
F I
NN
OV
AT
ION
S
1 2 3 4 5 6
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Key fact 2: all segments are not equally innovation-savvy
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Ma
turi
ty
2000 2005 2010 2015 2020
2003: launch of
Resolving
From 2010: Second
wave of players
2017: outbreak of the
first platforms
2019: new players account
for less than 1% of
cumulated market share
2018: Strategic partnership
between Finalcad & Eiffage;
Finalcad equips 90% of Eiffage
sites
2013: Finalcal starts its overseas
expansion
Sources: interviews, Strategy& analysis
Illustration based on the first two segments
Strategy&
Key facts 3: innovation brought by start-ups does not necessarily mean disruption for existing playersThere are three types of interactions between start-ups and incumbent corporate players
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Complementarity
• Mostly observed in the B2B
segments with
complementary value
proposition
• E.g.: site coordination
software, software for asset
& property managers
Market extension
• Less frequent: start-ups
start addressing overlooked
market segments
• E.g.: new financing
schemes for security
deposits & rent guarantee
Plain competition
• Mostly on B2C segments
• E.g.: new house financing
brokers and fixed rate real
estate agents
Competition between start-ups and incumbent corporate players
Sources: interviews, Strategy& analysis
Whether complementary or in competition, start-ups are boosting innovation among
existing players
3. Deep dive by segment
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Sources: Strategy& analysis
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The site coordination software segment shows strong signs of imminent business transformation
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Most of the building blocks for success are here…
1Acute need
from clients
2Proven track record
3Material means of
implementation
4Will it become the
new standard?
Sources: interviews, players publications, Strategy& analysis
2019 Market size
€25m
Market potential over
the next decade
€200m
“The SMEs market is extremely promising. There
are tens of thousands companies that are not
equipped with our technologies but have a deep
interest in site coordination software on
smartphones and tablets.”
Start-up co-founder
“The adoption rate of site coordination software is
growing among large groups, though it is still used
on a minority of sites. It should increase in the
coming years driven by productivity savings
generated by this technology. »
Start-up co-founder
1
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Sources: Strategy& analysis
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In a thriving market, new house loan brokers bet on technology and evolving customer expectation
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House loan broker’s market share in
volume, 2001-2022e (% of total loans)
44%
2017
34%
2005 2022e
18%
House loan brokering market size
(€bn)
€0.3bn €1.4bn
House loan brokering distribution
channel by age bracket, (% of brokered
loans)
80
66
20
34
< 35y
100%
Average
100%
In storeOn line
“We are developing a set of digital
tools to automate our process.
However, we will keep on
developing our network as
customers’ key concern is to be
supported through the process.”
Deputy CEO, Leading player in
the house loan broker market
Digitization of incumbent players
“We will benefit from millennials
entering the house-buying age.
Millennials are less loyal to their
banks and ready to opt for a
100% online broker”
Co-founder, Start-up
New entrants perspectives
Sources: Interviews, Strategy& analysis
2
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Sources: Strategy& analysis
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“We have enriched our service offering:
virtual visits, geo-tracking, … We do not
want to level down our services to enter a
price war with start-ups”
Innovation Director, Leading player
Fixed rate real estate agents are still trying to reinvent the agency’s business model
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An apparent paradox
Two sets of competing
answers
An outcome still in
balance
An apparent paradox An apparent paradox
Significant customer dissatisfaction An unaffected rate of intermediation
of French people have a
negative image of real estate
agents
of house sales are
intermediated in France
“Thanks to digitization and process
automation, we are able to provide a full
range of services for a fixed price, way
lower than traditional agencies.”
Co-founder, Start-up
Adding value… …vs. killing costs
What about a hybrid model?
An apparent paradox• Fixed rate agents business equation is tricky since they seem to be
competitive only in large cities
• International benchmarks suggest that new players will need to find a
balance between “do-it-yourself” and “do-it-for-me” business models
Sources: interviews, CNRS, Xerfi, players publications, Strategy& analysis
85% 69%
3
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Sources: Strategy& analysis
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The asset & property management software segment shows strong potential for market cooperation
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Best of breed approach
• IT core model focused on finance
• Acquisition or in-house
développent of issue-specific
solutions
Newcomers in the market should trigger renewed R&D investments among incumbent
players and foster new market dynamics in a rather concentrated industry
Start-ups
Incumbent
players
« There is a clear trend towards
hybrid systems. Companies will keep
on investing in ERP for core functions
but business related ones will be
increasingly business-specific »
Technology Expert, Consulting firm
« There is a clear complementarity
between start-ups’ software and ERP.
I do not believe that start-ups will
move up the value chain and become
ERP providers. They will remain
focused on analytics and reporting»
Expert, IT for Asset management firm
Sources: interviews, Strategy& analysis
4
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Sources: Strategy& analysis
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@
Short- and long-term house rental solutions drive productivity gains and favour disintermediation
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Short-term
rental
Long-term
rental
Find a tenant Select a tenant Edit standard
documents
Get rental
payment
Make transition
with new tenant
Sources : interviews, Strategy& analysis
Pain
points
So
luti
on
s
Short-term
rental platform
Automated
property ads
(writing,
posting)
Examples of pain points and solutions in the short- and long-term house rental segment
Automated
contract
drafting
Payment
platform
Rating system
on rental
platforms
Concierge
services, keys
handover
Automated
check of
applications
Digital tools for
departure
inventory
"Rental management is
one of the real estate
segments that has evolved
the least, mainly due to
market fragmentation. It
shows all the
characteristics of a
disruption in the coming
years. »
Innovation director,
Leading player
“Today, start-ups are
structured around two main
activities: productivity tools
for landlords and 100%
digital real estate
administrators”
Co-founder, Start-up
5
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Sources: Strategy& analysis
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Type of players
Risk carrier
Through Real Estate admin.
with white label
Landlord
Integrated player
Through Real Estate admin.
with own label
Landlord
Real estate administrator
/ Depending on players
/ Depending on players
Landlord
Start-up
Partnerships with risk carrier
Tenant
Start-ups expanded the rent guarantee segment, by addressing overlooked customers
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Product design Risk carrying Distribution End-customer
PartnershipSources: interviews, players publications, Strategy& analysis
6
4. Conclusion
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In the medium term, PropTech should radically transform the sector and introduce a new ecosystemWe identified 3 different scenarios
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Likelihood Likelihood Likelihood
• Selected start-ups increase
market share, becoming
challengers
• Incumbent players accelerate
innovation
• Innovation internalized by large
groups
• Most start-ups end their
activity
• General transformation of
Real Estate industry
• Start-ups gain leadership
position
• Players with lack of innovation
effort end their activity
Scenario 2:
Ongoing transformation
Scenario 1:
Epiphenomenon
Scenario 3:
Disruption
Strategy&
What will PropTech look like in 2050?
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FINANCIAL TIMESWEDNESDAY 21 SEPTEMBER 2050
First building on Mars to be delivered by end of monthby PwC & Real EstechNews Corp.
Tenants and landlords of this new condo can start booking their removal rocket: the project, started one year ago, will be delivered earlier than expected. “ Thanks to offsite construction handled from Earth and Big Data, we have been able to anticipate potential defects and to reach our “zero-reserve” objective. We will be able to deliver the project 1 month ahead of schedule.”
The building is to welcome ~500 happy few, who were the most reactive when the sale opened online.
“I am so excited to move in. I have already started to choose my apartment layout thanks to my VR headset” says Mary, landlord of a penthouse on the 56th floor. “At first, I was a bit anxious to move in so far away from home. But I already know most of my future neighbours now thanks to our digital community.”
For those who missed their chance of buying a flat, some apartments will be available for short-term rental in a few months.
Val MarinerisLone Pine Ranch
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Acknowledgements
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Meet our Panelists
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Bernard Michel
Chairman of
Viparis and Real
Estech
Craig Hughes
PwC Global Real
Estate leader
Deborah Fritz
CEO MYRE
Axelle Baillet
Business
Development
Director
Strategy&
Contacts
Vladislava IovkovaDirector - PwC Strategy&
Mathilde HauswirthPartner - PwC
Geoffroy SchmittPartner - PwC
Vincent PavanelloCo-founder - Real Estech
Robin RivatonCo-founder - Real Estech
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